Revamping the Supply Chain: The Ashok Leyland Way

            

Details


Themes: Supply Chain Management
Period : 1992-1998
Organization : Ashok Leyland
Pub Date : 2002
Countries : India
Industry : Automobiles

Buy Now


Case Code : OPER004
Case Length : 08 Pages
Price: Rs. 200;

Revamping the Supply Chain: The Ashok Leyland Way | Case Study


ICMR regularly updates the list of free cases. To view more free cases, please visit our site at frequent intervals.

<< Previous

Oscars II Contd...

In the new structure, plant sales yards acted as national pools to hold rare models (called "strangers") and excess of regional requirements. The next tier was made up of the five regional stock pools, which ensured just-in-time supplies to all regional sales offices.

Said Amol J Sandil, executive director, marketing, "Within the objectives of OSCARS II, namely, achieving efficient distribution and working capital management, we have been able to improve customer satisfaction by cutting down on delivery time." He further added, "Qualitative improvements in demand forecasting and data management have been central to this achievement".

In 1999, AL also adopted Total Quality Management practices. The Hosur plant in Karnataka came out with a new TQM process which seemed to be a success. (Refer Table I).

Table I
The Seven Plus One TQM Method

Rule

 Objective

 Result

Total Cost Management (TCM)

 Cut Cost

 Within a year, operating cost as a percentage of plant turnover was down by a third.

Energy Management

 Optimize energy loss

 Overall energy saving. Average power cost per product reduced by 30.06% without additional investment.

Value Engineering (VE)

 Efficient material usage

 Substantial reduction in the chasis cost.

Cross Functional Teams (CFT)

 Synergy

 The very first CFTs resulted in savings of Rs. 18.2 million.

Suggestion Scheme

 Involve everyone

 The quick handling of suggestion has resulted in continuous, suggestions to cut cost and improve quality.

Inventory Management (IM)

 Better housekeeping

 Probably the best IM today in the Industry that has resulted in a lot of saving.

Shop Investment Programme

 Monitor and Utilize

 Fix Operating cost as per cent of shop turnover machines efficiently.

Plus One

 Training

 Training across all levels in the organization.

Source: 'Geared Up', A&M, November 15, 2000.

However, with all these activities at the shop floor, AL did not lose sight of the customer. To understand customer needs and assimilate the knowledge, AL adopted '4P' Programme: Probe, Prioritize, Plan and Position. This worked in tandem with manufacturing as part of a cross-functional team (CFT). The CFTs worked towards continuous improvement in products and marketing. AL also built a 'marketing information system' (MIS) to monitor the trends and forecast demand from the inputs of the dealers and field executives.

The Comeback

In the first half of 1999-2000, AL recorded a net profit of Rs 1.9 crore on sales of Rs 1,092.8 crore, against a Rs 36.7 crore loss for the corresponding period in 1998-99. This seemed to have been possible due to operational efficiency resulting from strategic raw material sourcing, with fewer sources and higher volumes, which cut costs; better control over process inputs by tightening supply chain and inventories and; reduced operating expenses through cost savings on energy, tools, spares and adoption of preventive maintenance policies. In 1999-2000, raw material costs were down 1-2% and inventories reduced by Rs 300 crore. Also in 1999-2000, AL sold 37,859 heavy commercial vehicles (HCVs), 27% more than it did in 1998-99. AL's total income in 1999-2000, at Rs 2,611.41 crore was 25% higher than the corresponding figure for 1998-99. Its operational profits in 1999-2000 was Rs 55 crore, Rs.77 crore more than the Rs 12-crore operating loss it had made in 1998-99.

However, analysts felt that the comeback of AL could be attributed to the end of the recession. They cited the example of its main rival, TELCO, which also registered a 37.5% growth in sales volumes in 1999-2000. For AL officials the 'bad years' between 1997 and 2000 made it pinpoint its focus on critical issues like cost-reduction, operational improvement, and market penetration. Commented, R. Seshasayee, Chairman, AL, "The recession made us hasten the process of improvement that we had been working on for some time."

Still, in 1999-2000, despite the reduction, the company's material cost, expressed as a percentage of sales was, at 70%, 3% higher than that incurred by TELCO. Said Arindam Bhattacharya, Principal, A.T. Kearney, who was involved in Ashok Leyland's turnaround effort, "While the company has made significant progress, it will still take time to achieve global standards in inventory management and productivity."